Is annuity with a min.7% return gurantteed a good deal for just-retired?

Question

Is annuity with a min.7% return gurantteed a good deal for just-retired?

Answer 1

There are many types of annuities. Many are filled with hidden fees. I don't know your specific situation or the annuity you're looking at.... but "caution" is the main point here!

7% guaranteed is most likly only the first year. If it's a "variable annuity" stay clear!

Annuities are generally great for the "advisor"..... not anyone else (unless you're in a very high bracket.... and even then there are better alternatives).

Answer 2

Depends what the annuity will cost you. If it costs you 3%, then that is not a good deal. Look for stocks with good history of dividend payments. Some Canadian Royalty Trusts are paying 8-10% but you do have to pay the canadian tax on it--they take it out before they pay the dividend, which is usually paid monthly. Solid companies like GE, Proctor and Gambel, Johnson & Johnson, Verizon, AT&T, Philip Morris, all are decent dividend payers. When you buy an annuity, the salesman is the one who wins. The commission is big $.

Answer 3

I tell everybody I know to NOT buy them.

Annuities pay the highest commissions and thus have the highest cost of ANY financial instrument sold in the US. (This caution was told to me by a retired Federal Reserve Board member).

Therefore they usually provide the WORSE returns of any investment.  If you annuitize them the interest you are getting, usually falls to a very poor return.

And your agent gets paid, beside the huge commission, a residual payment every year you have money in it. This is why they sell them HARD, they make so much money off you.

My second advice is to dump ANY adviser that suggests annuities. They are not looking out for your best interests they are looking to make the most money off of you.

Retirees like the idea of a regular check and some get sold by the tax deferral.  And they are not entirely safe. My father had one with an insurance company that went bankrupt. He eventually got his money back because the state controls "insurance products" and annuities get their tax deferral as an insurance product. But it is possible to get only part of you money back if the company fails.  

But be aware, you said "return" not interest, not gains but "return". They do NOT make that much.

By law, annuities are required to pay out interest and capital BOTH in the percentage it is in the annuity. So some of that "7% return" is your own money, the capital, being returned to you. NOT profit.

Some do have a "teaser rate" for a couple of years before they fall to the "real" rate which is too low. But they have locked you in to 10, 15, 20 years where they make that money back from you at the low rates.

My reading says if your other income is less than $200,000 per year you shouldn't even think about annuities. That income rate was about the break even point where the low return and high costs is compensated by the tax deferral.

For you looking to invest in retirement and maybe wanting some consistent income, I suggest you read "Bucket of money- How to retire in comfort and safety".

   http://www.amazon.com/Buckets-Money-Reti...

He had a money talk show I listened to for years. I could not fault almost anything he said, although I do things a little differently. But he lays out good strategies for maximizing your retirement money while compensating for the risk that is added from drawing on it.

Good Luck.

Answer 4

First, your question cannot be answered without additional information about your overall financial situation and about the specific annuity you are talking about.  With that said, here are my thoughts:

The annuity you are speaking of is probably not a good deal.  It probably has a high surrender penalty for a longer than average period of time.  The 7 % is probably guranteed payout, not a guranteed return.  This means that if the equities that the annuity is investing in make less than 7 %, the payout of 7 % will be in part funded by your principle, thus reducing future payouts.

Be very careful when investing in annuities.  They are typically sold because they offer a high commission to the sales person and are often not in the best interest of the client.  Ask your accountant to recomend a CFP to you.

Answer 5

No.  Do not buy an annity. They lock you in too long. That is an insurance company "bond".  They pay very low.  7% will be peanuts in just a few years.  Maybe do it if you can get a short term of 1 year.  Otherwise, no.  It's like getting into a variable rate mortage, except your return is static and inflation is  rising dramatically.